Bankruptcy Signals Trouble For First Solar

The perpetual First Solar (FSLR) bears at FBR Capital, are at it again this morning. FBR released another note warning that there is “significant downside risk” to the share price of First Solar based on fundamental data.

Chief among their concerns is the bankruptcy of Econcern, the parent of Ecostream. Ecostream constitutes 5-6% of FSLR’s sales. If they go under, they take a large chunk of FSLR sales with them. Ecostream is looking for private investors, but it’s unclear what will happen.

First Solar is going to have a tough time finding new buyers. Granted they announced a deal last week, but there was no price or volume attached to the deal. Sharp solar, a thin film company like FSLR, secured a long term deal with Italian utility Enel. That shuts off the chance at a big customer for First Solar.

The weakening dollar is helping First Solar, but not nearly enough. The company is still under pressure from weakening polysilicon prices, which have a bigger impact than foreign exchange gains.

While there’s an emphasis on FSLR lowering its manufacturing costs, certain things like concrete, construction and engineering can’t be scaled. FBR thinks the street is missing the fact that FSLR will be owning more projects, which alters revenue recognition.

All that said, it’s important to remember FBR put out a bearish note last Tuesday. FBR’s note, combined with a negative Barron’s article, knocked the share price down. But the price slowly marched back up the rest of the week.

Also, of note, critics call FBR a perma bear on this stock, as FBR mentions in its note. From our armchair, we’d note that First Solar is the type of company that manages to beat analyst estimates pretty consistently. So take that for what it’s worth.